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Warner Music sold for $1.3 billion
Cutbacks expected as sales continue to decline industrywide
Question of the Day
LOS ANGELES | Warner Music Group Corp., the world’s third-largest recording company with such artists as Eric Clapton, Michael Buble and Paramore, is being sold for about $1.3 billion as a global decline in CD sales weighs down the industry.
The deal, announced by the companies Friday, comes as U.S. recorded music sales are half what they were about a decade ago. Gains in digital sales have started to flatten, and CD sales continue to fall.
That means Mr. Blavatnik will have to cut staff and other expenses further and hope that a new wave of innovation will carry digital music sales higher.
Mr. Blavatnik is a former board member who was part of the group that bought the company in 2004. He has about a 2 percent stake in the company.
The sale ends a seven-year run by investors led by Chief Executive Edgar Bronfman Jr., who purchased the company from Time Warner Inc. with private equity backing for $2.6 billion. Those investors slashed payrolls and took other measures to cope with music’s decline. They took the company public a year later to help recoup their investment. There are now just 3,700 employees, down from 5,100 in late 2003.
The Russian-born Blavatnik will likely have to cut even more - so much so that billionaire Ron Burkle balked at pursuing the company past an initial round of bidding. Mr. Burkle worried that cuts might start to hurt Warner-signed artists he considers friends, such as Red Hot Chili Peppers, according to a person familiar with the matter. The person wasn’t authorized to speak publicly and spoke on condition of anonymity.
The fortunes of the music industry remain uncertain, and last year rising download sales were offset by the collapse in the popularity of ringtones.
The new owner may have to bank on new services yet to take off. There’s speculation that Google Inc. is coming out with a music service and that Apple Inc. will unveil a subscription plan to complement sales of individual tracks on iTunes.
Further deal-making is possible. Citibank is looking to sell Britain’s EMI Group Ltd., which it seized from Guy Hands’ Terra Firma private equity group in February after it defaulted on a loan.
Other groups that lost out on bidding for Warner - including No. 2 music company Sony Corp. - are also looking for parts that may be discarded from this deal.
In one possible scenario, Warner’s new owner would try to buy No. 4 EMI in order to reap the benefit of slashing staff at a combined company, and then shed certain music labels or get rid of one of the publishing divisions to satisfy antitrust regulators.
By Matt Kibbe
The short-term deal will assure long-term overspending
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